This article contains all the information related to the profit of China’s venture investment despite crackdowns in mainstream technology. It also has reasons how and why it led to this, what was the role of the national government in it, and its effect.
Introduction to Venture Record Hit
When the government of China launched a total crackdown on the technology industry in the summer, nervous venture investors stopped giving out checks and startup numbers started to fall. It seemed as if the historic revolutionary boom in the country was done for. However, an unexpected thing happened.
In only a few weeks, the boot machine resumed. In fact, the risk capital investment in China reached $130.6 billion for 2021 according to research firm Preqin. This made a new record for the country and about 50% more than the last year’s sum of $86.7 billion.
This performance is spectacular considering the losses suffered by the industry’s big companies. Alibaba Group Holding Ltd., Tencent Holdings Ltd., Bytedance Ltd., and ride-sharing provider Didi Global Inc. have all been suffering losses in recent months. The whole online tutoring industry which was once a big shot for risk dollars has been shut into nonprofit.
Reason for Record in Venture Capital
However, entrepreneurs and risk capitalists have adapted to new opportunities at a shocking pace. They turned their attention away from softer internet dealings and focused on core technologies like semiconductors, robotics, and business software.
The sum of money put in biotechnology hit $14.1 billion the previous year, which is ten times more than in 2016. Jiang Jingjing, who is a fundraising attorney at King & Wood Mallesons in Hong Kong has remarked that the hunger of investors for Chinese technology remains unchanged. What has changed is where they have invested their money.
And it has become very transparent that more and more money has gone into startups with the latest and high-level technology. China is still much behind Silicon Valley in terms of risk capital investment overall. The United States had its own record income of $296.6 billion last year, which is more than double the total of China.
But in certain basic technologies, China is already ahead of the United States according to Preqin data. As President Joe Biden gravely sought to enlarge semiconductor production power in the United States, Chinese chips startups were filled with money offers.
Yong Luo, who was an engineer at Intel Corp. and has generated money for a new semiconductor startup despite not generating any revenue for two years, has said that in china it is now getting crazy and the chip industry is getting hot.
Chinese Government’s Role and Support
This is almost exactly how President Xi Jinping’s chief planners would have expected their five-year plans. The Communist Party has condemned the negative impact of games and online videos while striving for more resources to be administered to basic research.
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This change enables the country to reduce its dependence on US suppliers which is a chief priority for the Xi administration after the blacklisting of the US suffered by big names like Huawei Technologies Co. and SenseTime Group Inc.
In its recent five-year economic plan released in March, Beijing drew schemes to increase national R&D spending by more than 7% per year and sorted out seven technological regions in which it expects to hit significant development.
These include space exploration, brain science, and quantum knowledge, all regions where American players now have their impact. The government of China is also granting funds to upcoming technologies like hydrogen vehicles and biotechnology, besides targeting to help its semiconductor business to reduce the gap with Intel Corp. and Taiwan Semiconductor Manufacturing Co.
Alicia García-Herrero, who is a chief Hong Kong economist at Natixis investment bank claims that the Chinese government is quite informed of the significance of innovation for China’s future and specifically to support the influence of growing and excessive capital aggregation on growth and that putting money in latest technologies is important.
There is no certainty that the tactic will work. China has created a generation of tech giants by letting talented entrepreneurs like Jack Ma of Alibaba and Zhang Yiming of ByteDance select their own way to the top.
Now that private sector business has been placed below a much more government-influenced method. A signal of the need for warning, the previous semiconductor giant of the country fell through in 2021 after years of government investment and political support.
Tsinghua Unigroup Co. spent a decade cramming on easy credit and purchasing foreign assets before failing as the government accepted that its multibillion-dollar debts had not allowed the country to create a sustainable chip business.
Effect of the Governmental Measures and Way Forward
Beijing’s tackling has narrowed the assortment of sectors considered secure for investment, resulting in an inflation in startup valuations as risk capitalists are all in the market for the same type of business models. Investors make fun of the money spent on “PPT companies” or startups with only PowerPoint presentations.
Today, China’s importance for fundamental technology has spread throughout the country. In the southwest city of Guiyang, Pix Moving founder Angelo Yu used to spend hours trying to persuade investors who doubted the capital-intensive and time-taking business model he had. But with Beijing’s tackling of Internet companies the previous year, all those ambiguities have quickly gone.
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Simpler access to capital coupled with more demand for Chinese-made technology fixes has tempted more talent to entrepreneurship. A prime example is Yuan Jie, a professor at the Hong Kong University of Science and Technology. The longtime intellectual has spent most of his career helping global players like Intel to develop their chip technology.
No Yuan has founded Atom Semiconductor Technologies to produce its own silicon. Made at the end of 2020, the company has finished two fundraising rounds and quadrupled its estimation, making the road for Yuan to advertise its study over the years.
Beijing-based Sinovation Ventures, a tech risk capital firm founded by a previous executive of Google Kai-Fu Lee, intends to spend every dollar it earns this year on funding enhanced technology and science of life.
This is a raise from the roughly 10% Lee granted to these sectors in 2010. Gary Rieschel, who is the founding CEO of Qiming Venture Partners, says deep tech companies now make up for around 40% of his brand’s investments, rising from 10% in 2014. Rachel commented that this is what you observe with venture capitalists that they make changes.